I.T.A. No.2328/LB of 1999, decided on 12th January, 2004. VS I.T.A. No.2328/LB of 1999, decided on 12th January, 2004.
2004 P T D (Trib.) 1852
[Income‑tax Appellate Tribunal Pakistan]
Before Rasheed Ahmed Sheikh, Judicial Member and Javed Tahir Butt, Accountant Member
I.T.A. No.2328/LB of 1999, decided on /01/.
th
January, 2004. (a) Income Tax Ordinance (XXXI of 1979)‑‑‑--
‑‑‑‑S. 66‑A‑‑‑Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order‑‑‑Invocation of provision of S.66‑A of the Income Tax Ordinance, 1979 merely on disagreement in the assessment with Assessing Officer‑‑‑Validity‑‑‑Provisions of S.66‑A of the Income Tax Ordinance, 1979 were supervisory in its character and while exercising the powers under the said section it was statutory obligation of the Inspecting Additional Commissioner to determine as to whether the order sought to be interfered with was erroneous and was also prejudicial to the interest of Revenue.
(b) Income Tax Ordinance (XXXI of 1979)‑‑‑
‑‑‑‑S. 66‑A‑‑‑Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order‑‑‑Poor quality of assessment order‑‑ Invocation of provision of S.66‑A of the Income Tax Ordinance, 1979‑‑ Validity‑‑‑Mere poor quality of assessment order could not be a genuine reason to invoke the provisions of S.66‑A of the Income Tax Ordinance, 1979‑‑‑If an assessment order was not found to the satisfaction of the Inspecting Additional Commissioner in quality it could not be held to be a sufficient ground for invoking the provisions of S.66‑A of the Income Tax Ordinance, 1979 as the condition precedent to reach an objective conclusion to the effect that the assessment order was erroneous in law, and fact and at the same time prejudicial to the interest of Revenue‑‑ Unless such two conditions did not simultaneously exist in the completed assessment, the Inspecting Additional Commissioner was debarred to invoke jurisdiction under S.66‑A of the Income Tax Ordinance, 1979.
(c) Income Tax Ordinance (XXXI of 1979)‑‑‑--
‑‑‑‑S. 66‑A‑‑‑Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order‑‑‑Presumption and assumption‑‑‑There must be some material before the Inspecting Additional Commissioner for holding that the order of the Assessing Officer was erroneous and prejudicial to the interest of Revenue and mere making observation to that effect was not sufficient to assume jurisdiction‑‑‑Presuming and assuming in absence of any material on record for considering that the assessment order was erroneous and resulted in loss of revenue to the exchequer was not a good ground for invoking the provisions of S.66‑A of the Income Tax Ordinance, 1979.
(d) Income Tax Ordinance (XXXI of 1979)‑‑‑--
‑‑‑‑S. 66‑A‑‑‑Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order‑‑‑Cancellation of assessment on the grounds that expenses claimed on selling and distribution account had recorded an unusual increase, warranting minute examination; that expenses were accepted without documentary evidence for the reason that most of the expenses were small in nature; that Assessing Officer had not examined as to whether the expenditure claimed was actually incurred or not; that Assessing Officer failed to examine disqualification as laid down under S.24(ff) of the Income Tax Ordinance, 1979; that increase in sundry creditors had not been examined and that extent of production with reference to units of electricity and gas consumed had not been examined‑‑‑Validity‑‑‑Inspecting Additional Commissioner had no jurisdiction to invoke the provisions of S.66‑A of the Income Tax Ordinance, 1979‑‑‑Had the Inspecting Additional Commissioner been in possession of some information after completion of the assessment, he could have passed it on to the Assessing Officer to initiate proceedings under S.65 of the Income Tax Ordinance, 1979 but he had no powers to re‑consider the same information in terms of S.66‑A Income Tax Ordinance, 1979 particularly when the already formulated assessment was made after considering all those facts of the case, which now had been made basis for invocation of S.66‑A‑‑‑Noticc was issued on vague assumption based on the hypothesis of "non‑examination of claim of expenses and vouchers as well as the payment made to the creditors of selling and advertisement expenses plus the increase shown in sundry creditors"‑‑‑Inspecting Additional Commissioner being not in possession of definite facts, sufficient to negate the assessment order of the Assessing Officer, order passed in terms of S.66‑A of the Income Tax Ordinance, 1979 was not sustainable in law and as such same was vacated by the Appellate Tribunal and restored that of Assessing Officer.
(1977) 75 Tax (Trib.) 70; 1984 PTD 137; 1990 PTD 914; PLD 1964 SC 410; 1988 PTD 723 = PLD 1988 Kar. 587 and NTR 1990 (Trib.) 267 rel.
(e) Income Tax Ordinance (XXXI of 1979)‑‑‑--
‑‑‑‑S. 66‑A‑‑‑Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order‑‑‑Supervisory authority‑‑‑While exercising supervisory authority, the Inspecting Additional Commissioner was not expected to indulge in deep enquiry by assuming the role of Assessing Officer.
(f) Income Tax Ordinance (XXXI of 1979)‑‑‑--
‑‑‑‑S. 66‑A‑‑‑Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order‑‑‑Proceedings initiated under S.66‑A of the Income Tax Ordinance, 1979 could not be held to be administrative in nature though supervisory in its character.
Shahbaz Ahmed Butt for Appellant.
Mian Javed‑ur‑Rehman, D.R. for Respondent.
Date of hearing: 10th January, 2004.
ORDER
Vide this appeal, the assessee‑appellant has called in question the IAC's order, dated 20‑4‑1999 whereby the provisions of section 66‑A were invoked by him to declare the already completed assessment, under section 62, to have been erroneously made and that was also prejudicial to the interest of Revenue.
2. Facts forming back‑ground of initiation of proceedings by the IAC under section 66‑A of the Income Tax Ordinance, 1979 are that subsequently to finalization of assessment under section 62 of the Income Tax Ordinance, 1979, the income‑tax record was requisitioned by the IAC and he, after scrutiny thereof, noticed certain deficiencies in that order. The summary of which is as under:‑‑
(a)That the expenses claimed on selling and distribution account have recorded an unusual increase, warranting minute examination, which has not been carried out by the Assessing Officer.
(b)That the Assessing Officer through notice under section 62 asked to furnish documentary evidence/supporting vouchers but subsequently accepted the assessee's vouchers explanation for non‑production of the asked supporting evidence for the reason that most of the expenses are small in nature based on hundred of vouchers, production of which would involve cumbersome process. The acceptance of such plea was unwarranted in view of involvement of only 14 parties.
(c)That the Assessing Officer has not examined as to whether the expenditure claimed was actually incurred or not.
(d)That the Assessing Officer has failed to examine disqualification as laid down under section 24(ff).
(e)That the increase in sundry creditors has not been examined by the Assessing Officer.
(f)That extent of production has not been examined with reference to units of electricity and gas consumed, where in substantial increase in fuel etc. has been recorded.
Thereafter, a show‑cause notice was issued confronting the assessee as to, why the provisions of section 66‑A of the Income Tax Ordinance, may not be invoked to retrieve a loss of Revenue caused by erroneous assessment.
3. The explanation tendered in response to the queries mentioned supra was not considered satisfactory by the IAC. It wad thus concluded that the Assessing Officer, while finalizing the assessment under section 62 of the Income Tax Ordinance, 1979, had failed to examine the expenses incurred on account of advertisement and publicity properly. Thus, failure of Assessing Officer to do so caused loss of Revenue and that was exactly what had rendered the assessment not only erroneous but that was also prejudicial to the interest of Revenue. Accordingly the already completed assessment was held to be not sustainable in law and was therefore, cancelled by the IAC in terms of section 66A of the Income Tax Ordinance, 1979. Direction to the Assessing Officer was also passed on to examine the assessee's claim on account of advertisement and publicity minutely and to ensure that only such part of claim is to be allowed as conforms to the provisions of section 24(ff) of the income Tax Ordinance, 1979. This has compelled the assessee appellant to challenge the IAC's order, dated supra in appeal before the Tribunal.
4. As regard extent of production, it was held by the IAC that the turnover as assessed in the original order would not be interfered with as volume of the business with reference to expenses incurred on account of fuel and power have been increased in proportionate to the increase in the expenses.
5. Mr. Shahbaz Ahmed Butt, the learned counsel for the assessee has been heard at great length on legal as well on factual plains. His main thrust of arguments was that the IAC has acted in flagrant violation of law while invoking the provisions of section 66‑A in the present case. In this regard it was explained by the learned A.R. that unusual increase in selling, and distribution expenses was properly examined by the Assessing Authority. Quoting from the assessment order, it was urged that the Assessing Officer had duly taken cognizance of factum of increase in selling and distribution expenses by 136% over that of the last year. Such an observation was the result of conscious application of mind to the facts of the case and‑ it has incorrectly been alleged unusual increase in expenses had not been noticed by the Assessing Officer.
6. Continuing further our attention was also invited to the notice issued under section 62, dated 16‑5‑1998 whereby supportive evidence regarding selling and distribution expenses were requisitioned by the Assessing Authority which were duly produced for his consumption. It was only after proper scrutiny thereof an appropriate disallowance was made by the Assessing Officer out of the total expenses claimed in this account. Coming to the expenses incurred under the heads advertisement and publicity, carriage and forwarding, incentives and commission and cartons consumed, it was stated that the claims were supportive of hundreds of vouchers and it would be a very cumbersome exercise to file photocopies of all of them. However, complete details were filed by the assessee and appropriate disallowance was made out of them after thorough scrutiny thereof.
7. Further added that summary of advertisement expenses was also filed during the course of assessment proceedings which for the purposes of ready reference. is being produced hereunder:‑‑
Previous year balance outstanding5,89,681
Billing for the year under reference2,67,28,679
2,73,18,360
Less payment during the year1,38,27,548
Balance outstanding on 30‑6‑19971,34,90,812
Even the details of actual payments made was also requisitioned by the Assessing Officer, which is as under:‑‑
Payment through banking channel is2,64,64,529
(with party‑wise details)
Misc. Petty cash payments12,07,937
Total:‑‑2,76,72,466
It was only after examining the relevant bank statement, it was held by the Assessing Officer that an amount of Rs.2,64,64,529 had been paid through banking channel:
8. In addition to the aforesaid it was also mentioned that the assessee is maintaining its books of accounts on mercantile system under which expenses incurred in one year can be paid for the year or the years to come as such there was. nothing wrong with the order passed by the Assessing Officer. The learned counsel for the assessee has also referred to the language of section 24(ff) to contend that only when any payment is made on account of expenditure incurred under a single head which, in aggregate exceed Rs.50,000 otherwise than through a crossed cheque or by a crossed bank draft that payment shall be construed as to authorize the allowance or deduction thereof. Since the balance has been shown payable, therefore, the provisions of section 24(ff), ace not attracted to the extent the payment has been claimed to be still payable.
9. According to the learned counsel for the assessee this is not the case to which the provisions of section 66‑A. can be invoked reason being the IAC has resorted .to check quality of assessment which is not permissible under the law. It was emphatically contended by the learned counsel for the assessee that mere disagreement between officers on the result of Assessment is not a good ground for invoking section 66‑A. This is what has been happened in the present case. Supporting in this regard was drawn from the following case‑law:‑‑
(1) 1977‑75 Tax (Trib.) 70
(2)1984 PTD 137.(H.C. Lahore).
10. It was further pleaded by the learned counsel that the IAC can initiate the proceedings on the basis of record existing at the time of assessment and not on the material which was seized subsequently after completion of assessment. In such‑like eventuality the provisions of section 65 can be invoked and not those of section 66‑A of the Income Tax Ordinance, 1979. Whereas the IAC in the present case has got conducted the enquiry himself to inquire with regard to mode of payment of expenses incurred on account of advertisement; after initiating proceedings under section 66‑A of the Income Tax Ordinance, 1979 which is not permissible under the law. Reference in this regard‑was made to a case‑law reported as 1990 PTD 914.
11. Another line of arguments of the learned counsel for the assessee was that since the order made under section 62 of the Income Tax Ordinance, 1979 was a result of judicial proceedings, therefore, such judicial order cannot be cancelled or modified by an administration order which has been passed under section 66‑A of the Income Tax Ordinance, 1979 as this section is merely a supervisory in its character Support in this regard has been made to a case‑law reported as PLD 1964 SC 410.
12. The impugned order has also been attacked by the learned counsel for the assessee that adherence to the two conditions precedent for invoking the‑provisions of section 66‑A are sine qua non. If out of the two conditions, one is satisfied and the other is not, In this eventuality the provisions of section 66‑A cannot be invited. Reverting to the facts of the case it was explained that the IAC could only refer to a loss of Revenue but he had failed to point out as to how the assessment order was erroneous in law. Strength in regard has been acquired from the following case‑law:‑
(1)1984 PTD 137; (2) 1988 PTD 723 = PLD 1988 Kar. 587 and (3) 1991 PTD (Trib.) 321.
13. Concluding his arguments it was urged by the learned counsel for the assessee that the provisions of section 66‑A, of the Income Tax Ordinance, 1979 have riot been invoked lawfully being the already completed assessment did not hit by mischief of this section.
14. We have given anxious thought to the rival arguments as well as perused the case‑law cited at the bar and find the contentions raised by the learned counsel for the assessee to be quite legitimate that the provisions of section 66‑A have been invoked illegally in the present case. As is evident from the assessment order that the Assessing Officer, after thorough appreciation of facts of the case had observed that out of the total expenses claimed under the head advertisement, publicity and cartons consumed amounting to Rs.27672466, a sum of Rs.2,64,64,529 was paid through the banking channel while petty cash payment of Rs.12,07,937 was made to other miscellaneous parties. Out of this petty cash payment an amount Rs.10,75,000 was disallowed and added back by the Assessing Officer to which the provisions of section 24(ff) were not attracted.
15. The close study of the notice issued under section 66‑A clearly spells out that there was nothing in possession of the IAC wherefrom it could be inferred that the assessment framed by the Assessing Officer in any manner, was erroneous. Till to date consensus of the authorities is that provisions of section 66‑A cannot be invoked on mere disagreement in the assessment between the two officers. In fact the provisions of section 66‑A are supervisory in its character and while exercising the powers under this section it is statutory obligation of the IAC to determine as to whether the order sought to be interfered with is erroneous and is also prejudicial to the interest of Revenue. To our mind all the reasons put forth for canceling the already completed assessment were based on vague and conjectural, reasonings. Such as that an unusual increase in expenses was warranted minute examination of the claim which was not made by the Assessing Officer; that acceptance of the assessee's‑contention without examining the vouchers clearly establishes that the expenses had been allowed without examining the vouchers; that payment to the creditors of selling and advertisement expenses were not made through crossed cheques and therefore, the expense were incorrectly allowed in the assessment year 1997‑98; that Assessing Officer has failed to verify the claim of increase shown in the sundry creditors and that the extent of production has not been examined with reference to units of electricity and gas consumed.
16. All these observations of the IAC are simply subjective in nature and the basis for issuance of notice is restricted to only thinking. Mere poor quality of assessment could not be a genuine reason to invoke the: provisions of section 66‑A of the Income Tax Ordinance 1979. It is so because if an assessment order is not found to the satisfaction of the IAC in quality it could not be held to be a sufficient ground for invoking the provision of section 66‑A as the condition precedent to reach and objective conclusion to the effect that the assessment order is erroneous' in law, fact and at the same time prejudicial to the interest of the Revenue. Unless these two conditions do not simultaneously exist in the. already completed assessment, the IAC is debarred to invoke jurisdictions under section 66‑A of the Income Tax Ordinance, 1979.
17. We are also persuaded to incline with the plea of the learned counsel for the assessee that the IAC has no authority to substitute his own discretion and his own way of appreciating the fact for arriving at a pre‑conceived desired results. Actually there is nothing on the record to justify the intended action under section 66‑A as all the details were available on record to which reference has been made in the assessment order. There must be some material before the IAC for holding that the order of the ITO was erroneous and prejudicial to the interest of Revenue and mere observation to that effect is not sufficient to assume jurisdiction. Presuming and assuming in absence of any material on record for considering that the assessment order was erroneous and resulted in loss of Revenue to the exchequer is not a good ground for invoking the provisions of section 66‑A. The IAC has time and again observed in his order that the claim of expenses under the heads mentioned supra appears to be highly distorted because the Assessing Officer has not bothered to verify the expenses.
18. Following the ratio decidendi in the case‑law cited supra we have no ambiguity in our mind that the IAC had no jurisdiction to invoke the provisions of section 66‑A in the present case because the already completed assessment was not hit by mischief of section 66‑A. Had the IAC was in possession of some information after completion of the assessment, he could have passed it on to the Assessing Officer to initiate proceedings under section 65 but he has no powers to re‑consider the same information in terms of section 66‑A particularly when the already formulated assessment was made after considering all those facts of the case, which now have been made basis for invocation of this section.
19. Actually the IAC in the present case has traveled beyond the scope of authority vested in him under section 66‑A. The learned DR could not show us from the findings of the IAC if he has made out a specific case which made the assessment order erroneous in law rather has merely charge‑sheeted the Assessing Officer showing his incompetency and inefficiency. As a matter of fact the notice was issued on vague assumption based on the hypothesis of non‑examination or claim of expenses and vouchers as well as the payment made to the creditors of selling and advertisement expenses plus the increase shown in sundry creditors." It is well accepted principle that provisions of section 66‑A are not available on such grounds. Moreover, while exercising the supervisory authority, the IAC was not expected to include in deep enquiry by assuming the role of Income Tax Officer. Since, the IAC was not in possession of definite facts, sufficient to negate the assessment order of the Assessing Officer, therefore, from the foregoing discussion we are satisfied that the older passed by IAC in terms of section 66‑A was not sustainable in law and as such that stands vacated. This would result into restoration of the assessment order passed under section 62 of the Income Tax Ordinance, 1979.
20. So far as the learned counsel's plea that the judicial order passed under section 62 cannot be cancelled or modified by passing an administrative order under section 66‑A is devoid of any force. Reason being the process started by the IAC before issuing a notice is purely administrative and subjective. But once a notice is issued the proceedings become quasi‑judicial in nature. We, therefore, hold that the proceedings under section 66‑A cannot be held to be administrative in nature though I supervisory in its character. This objection of the learned counsel for the assessee is therefore, overruled.
21. The assessee' Appeal accordingly succeeds.
C.M.A./85/Tax (Trib.)Assessee's appeal accepted.